SVET Reports
SVET Markets Weekly Update (August 26 - 30, 2024)
SVET Markets Weekly Update (August 26 - 30, 2024)
On Week 35, stock markets started to show signs of a slowing uptrend. The Fed's favored inflation indicator, Core PCE prices, increased at a lower speed. Globally, the dollar weakened to a 13-month low after Powell hinted at rate cuts. Gold hit a new record high as investors bet on Fed monetary easing. In the crypto markets, BTC and ETH were stuck in their month-old ranges of around 60K and 2.5K as political uncertainties continued to haunt investors. Additionally, the arrest of Telegram CEO Pavel Durov in France has sparked a worldwide discussion on digital rights.
On Monday, stocks were mixed, with the Dow hitting a record high while tech stocks fell. Investors anticipate rate cuts and focus on Nvidia's earnings. Durable goods orders rebounded to a four-year high. Internationally, the dollar hit its yearly lows as gold and oil surged following Powell's dovish comments and ongoing tensions in the Middle East. BTC and ETH declined slightly after hitting their 200-day moving average.
Details
Manufacturing orders rebounded strongly (+9.9%, the most in 4 years) in July, driven by transportation equipment including defense aircrafts. Overall orders excluding transportation declined slightly. The data challenges recent pessimism about the manufacturing sector. 1Y trend: "Side" (Census)
Crypto
The arrest of Telegram CEO Pavel Durov in France has sparked a worldwide discussion on digital rights, with some criticizing it as an attack on free speech and privacy. Prominent figures have condemned the action, prompting Macron to deny personal involvement, arguing that the arrest is part of a judicial investigation, not a political decision. (source)
World Markets
Nigeria's economy grew faster in Q2, driven by increased oil output. Non-oil sectors also grew steadily. However, quarterly GDP was nearly flat due to a sharp decline in the previous quarter. 1Y trend: "Up" (NS)
The Ifo Business Climate index in Germany fell to its lowest level in six months in August, indicating a worsening economic outlook. Companies are more pessimistic about the current situation and future prospects. 1Y trend: "Side" (IFO)
Currencies
The dollar weakened to 13-months low after Powell hinted at rate cuts. Markets are now expecting a 25 basis point cut in September. The euro and sterling strengthened against the dollar as central banks in Europe and Japan signaled potential rate hikes. 1Y trend: "Side"
Commodities
Crude oil prices jumped on Monday due to Middle East tensions and expectations of lower interest rates. Rising tensions in Middle East have raised concerns about oil supply disruptions. The Fed's potential rate cuts have boosted market sentiment, though concerns about weak energy demand persist. 1Y trend: "Side"
Gold hit a new record high as investors bet on Fed rate cuts. Powell signaled a shift in Fed policy, emphasizing job market risks and inflation decline. Markets are split on the size of the September cut but expect multiple cuts this year. Rising geopolitical tensions also supported gold's safe-haven appeal. 1Y trend: "Up"
On Tuesday stocks traded mixed as Richmond manufacturing reached a four-year low. Tech stocks rose, led by Nvidia, KLA, Adobe, and Teradyne. Globally, the Mexican peso hit a 20-month low as investors worried about the government's reforms. Meanwhile, BTC and ETH dropped sharply to their monthly support levels of 60K and 2.5K, respectively, as rate-cut-induced enthusiasm faded and technicals kicked in due to the absence of support from institutional traders and whales, who remain influenced by political ambivalence.
Details
The Dallas Fed's service sector index fell in August, indicating a decline in business activity. Employment remained stable, but company outlook and input prices rose. 1Y trend: "Up" (DFed)
The Richmond District Survey showed a contraction in service sector activity in August. Demand and revenue indexes fell, but future outlook remains positive. Employment remained stagnant, but firms reported wage increases. Firms expect to hire more but struggle to find skilled workers. Price growth is expected to moderate. 1Y trend: "Up" (RFed)
House prices rose slightly in Q2 but slowed down in June. The West South Central division had the smallest price increase, while the Middle Atlantic division had the largest. Higher mortgage rates and increased home inventory contributed to the slowdown. RFed
Crypto
BlackRock is launching an Ethereum ETF on the Brazilian stock exchange. This follows the successful launch of their Bitcoin ETF earlier this year. The new ETF will trade under the ticker code ETHA39. This move further solidifies Brazil's position as a leading market for crypto ETFs. (source)
World Markets
German consumer confidence plummeted in September due to job insecurity, rising bankruptcies, and a weak economy. The post-European Football euphoria has faded, replaced by pessimism about economic prospects. 1Y trend: "Up" (GFK)
Thai car sales and production continue to decline (-21%), marking the 14th consecutive month of decrease. Tighter financing rules and economic slowdown are blamed. The FTI has lowered its production forecast for 2024. 1Y trend: "Down" (TH)
Currencies
The Mexican peso is weakening due to political risks and concerns about judicial independence. Proposed constitutional reforms threaten investor sentiment, leading to capital outflows. While new tariffs on Chinese goods may benefit Mexico indirectly, other economic factors like inflation and weak retail sales continue to pressure the peso. 1Y trend: "Down"
Comment: What's Up With Thailand ?
The Thai economy is recovering slowly, despite strengthening local currency (baht) and low inflation, hindered by factors like household debt and a slowdown in Chinese tourism. While exports are improving, the economy is still below pre-pandemic levels. The government's efforts to reduce inflation have helped, but consumer purchasing power remains a concern.
The Thai economy in 2024 is gradually recovering, although growth remains below expectations. The Bank of Thailand has revised its GDP forecasts to 2.4% for 2023 and 3.2% for 2024. However, incorporating the Digital Wallet project could push 2024 growth to 3.8%.
Tourism, previously a major economic driver, is still a concern. In November 2023, Malaysia led in foreign tourist arrivals with 4 million visitors, representing only an 8% increase from pre-pandemic levels in November 2019. This situation is compounded by a 30% decline in Chinese tourist arrivals, attributed to China’s slowing economy, prolonged negative inflation, and an ongoing property crisis that has weakened purchasing power and travel demand. As a result, the number of tourists in 2024 is unlikely to reach the 2019 peak of 39.9 million.
On the exports front, while data from the Trade Policy and Strategy Office indicates that export value contracted by 2.7% year-on-year in the first ten months of 2023, a recovery in the electronics sector is showing promise. Electronic appliances make up the largest share of Thailand's total exports, with overall export value in October 2023 growing by 8.0% year-on-year.
However, household debt remains a significant challenge. According to the Bank of Thailand, household debt reached 90.9% of GDP in Q3 2023, totaling 16.2 trillion baht, negatively impacting consumer purchasing power.
In terms of inflation, Thailand recorded a rate of -0.83% in December 2023, the lowest in 34 months and marking three consecutive months of negative inflation. This decline is largely due to government measures that have reduced energy prices and food costs. Nevertheless, many consumers continue to perceive certain products as expensive, largely because last year’s high base prices skew comparisons.
Overall, the economic situation in Thailand prompted many economists to characterize it as a stagflation - the same which might hit the world economy in a nearest future, spearheaded by an absence of growth drivers and gigantic debts accumulated by both households and corporations in a past 30 years of rapid global growth.
On Wednesday, stocks fell on technical factors followed by futures despite Nvidia's strong earnings report. Notable movers included Nordstrom and Ambarella. Investors are now focused on corporate reports from Salesforce, CrowdStrike, HP, and Affirm. Internationally, France's unemployment rate fell sharply in July as a result of the Olympic Games. BTC and ETH struggled to retain their $60K and $2.5K levels due to low demand as the August vacation period kicks in.
Details
Mortgage applications rose slightly previous week, following a sharp decline. This increase is attributed to lower interest rates. Applications for new home purchases rose, while refinancing applications declined slightly. 1Y trend: "Up" (MBA)
(Dares)
Crypto
The Ethereum Foundation's spending is divided between internal (38%) and external initiatives (68%). Most of the budget goes to external projects, including new organizations. This spending has raised questions about the foundation's transparency and alignment with its mission. (source)
World Markets
France's unemployment rate fell sharply in July, indicating a tight labor market. Unemployment decreased for most age groups, except for those over 50. However, compared to a year ago, unemployment rose slightly. 1Y trend: "Side" (Dares)
Russia's unemployment rate remained at a record low of 2.4% in July, reflecting a labor force crisis caused by the ongoing war in Ukraine. The number of unemployed people stayed at 1.9 million. 1Y trend: "Down" (RosStat) At the same time, Russia's monthly GDP growth rose to 3.4% in July from 3% in June. This marks the highest growth rate since May 2021. 1Y trend: "Down" EcDev
Currencies
The Brazilian real weakened as the dollar strengthened on growth signals. Inflation in Brazil rose slightly, fueling expectations for a rate hike. The central bank remains committed to its inflation target despite some improvement in inflation data. 1Y trend: "Up"
Comment: What's Up With Brazil
Brazil's economic trajectory over the past decades serves as a cautionary tale about the limitations of government interventions in stimulating sustainable growth. Despite various attempts at state-led economic policies, particularly during the post-2008 period, Brazil has struggled to achieve consistent long-term economic expansion.
The country's experience highlights the challenges of relying on government-driven growth strategies when fundamental market demand is weak, especially in key sectors like agriculture, which has been affected by fluctuations in Chinese demand. While government interventions, such as increased public spending, subsidies, and protectionist measures, may provide short-term boosts to the economy, they often prove unsustainable in the long run.
These interventions typically lead to temporary growth spurts but eventually face political resistance and contribute to rising inflation. As seen in Brazil's case, once these measures are exhausted or become untenable, the economy tends to revert to its previous state, sometimes even worse off due to accumulated debt and market distortions.
The Brazilian example suggests that lasting economic progress is more likely to come from creating an environment that fosters entrepreneurship and private sector innovation. By reducing bureaucratic barriers, simplifying the tax system, and encouraging market-driven solutions, Brazil could potentially unlock more sustainable growth paths. This approach would allow businesses to adapt more flexibly to changing global demand patterns and technological shifts, rather than relying on government-directed initiatives that may not align with market realities.
On Thursday, stocks closed mixed, with the Dow hitting a new record but the Nasdaq falling slightly, while data showed unexpected GDP growth. Nvidia's stock dropped after its earnings missed high expectations, raising concerns about the AI boom. Globally, the economic outlook in the Eurozone improved slightly. BTC and ETH remained stuck at $60K and $2.5K in the absence of drivers.
Details
The economy grew faster than initially thought in the second quarter (+3% vs 2.8%), primarily due to increased consumer spending. While imports rose, stronger investment in businesses and housing contributed to the overall growth. 1Y trend: "Down" (BEA)
Pending home sales in the unexpectedly fell by 5.5% in July, reversing June's gains. This marks the largest decline since April and is 8.5% lower than a year ago. The NAR's Yun attributes this to affordability issues and uncertainty surrounding the upcoming election. 1Y trend: "Side" (NAR)
Initial unemployment claims decreased slightly, but remain elevated compared to earlier this year. The softening labor market is evident, as shown by the July jobs report and revised nonfarm payroll data. Outstanding claims increased, while the four-week moving average and non-seasonally adjusted monthly claims decreased. 1Y trend: "Up" (DOL)
The Fed's favored inflation indicator, Core PCE prices, increased at a slower pace in the second quarter compared to the first quarter. This suggests that inflation may be moderating. 1Y trend: "Down" (BEA)
Crypto
Australia has seen a surge in BTC ATMs (1200), now ranking third worldwide. This growth raises concerns about potential criminal activity like money laundering and scams. Strict local banking rules and a prevalent gambling culture contribute to the increasing demand for BTC ATMs in Australia. (source)
World Markets
South Africa's annual producer price inflation decreased to 4.2% in July. This was the lowest level in a year, driven by slower cost increases across various sectors, including manufacturing and food. Prices actually fell slightly on a monthly basis. 1Y trend: "Side" (Stat)
The economic outlook in the Eurozone brightened in August, with the sentiment indicator reaching its highest point in over a year. This was contrary to expectations and brought some relief amid concerns of a continued economic downturn. While some sectors showed improvement, consumer pessimism remained high. 1Y trend: "Side" (EC)
Currencies
The Brazilian real fell past 5.6 against the dollar as concerns over President Lula's central bank nominee and rising inflation pressures increased. While the nominee has previously supported rate hikes, his close ties with Lula and past calls for lower rates have raised fears of a more lenient approach. The US economy's stronger-than-expected growth also strengthened the dollar. 1Y trend: "Up"
Comment: What's Up With South Africa
South Africa's economic trajectory since the 2000s presents a stark example of resource-driven growth failing to translate into broad-based prosperity. Despite periods of record GDP growth fueled by natural resource extraction, the country has experienced a troubling divergence between economic expansion and employment creation. The initial employment gains up to 2008 proved short-lived, with unemployment subsequently soaring to a staggering 35% and continuing to rise steadily.
This disconnect is further highlighted by the stock market's tenfold increase since 2000 and low inflation rates. Such trends point to a deeply unequal distribution of wealth, where profits from resource extraction are not reinvested into job-creating businesses within the country. Instead, these gains appear to be channeled into stock market speculation and real estate, inflating asset prices without generating meaningful employment opportunities.
The deterioration of South Africa's Business Confidence Index since 2008 underscores the growing unease within the business community. This decline suggests a lack of faith in the country's economic governance and business climate, further hampering job creation and inclusive growth.
These patterns clearly demonstrate the pitfalls of relying on resource extraction without fostering open markets and a conducive business environment. The result is a highly skewed economy where wealth accumulates at the top without trickling down to create jobs and opportunities for the broader population.
South Africa's situation calls for urgent and drastic reforms in governance and economic policy. Without significant changes to promote inclusive growth, diversify the economy, and improve the business climate, the country faces a bleak future. The current trajectory of rising unemployment, if left unchecked, poses serious risks to social stability and long-term economic viability.
On Friday stocks closed August with gains as the PCE price index matched expectations. The Dow reached a new all-time high (ATH). Dell's earnings boosted its stock, while Intel surged on restructuring news. Internationally, the unemployment rate in the Euro Area reached 6.4%, the lowest level since 1995. BTC and ETH continued to significantly underperform the stock market, forming bearish patterns as traders remained ambivalent about both economic and political conditions. Meanwhile, Q2 saw 2.5% increase in venture capital funding for crypto startups.
Details
The core PCE price index, the Fed's favored inflation indicator, increased 0.2% in July, matching expectations and June's rise. Year-over-year, core PCE inflation was 2.6%, below forecasts, suggesting the Fed may start lowering interest rates soon. 1Y trend: "Side" (BEA)
The Chicago PMI increased slightly in August, indicating a less severe economic slowdown in the region. While still below expansion levels, it improved from the previous month. New orders, production, and supplier deliveries contributed to the rise, but reductions in backlogs and employment limited the gains. 1Y trend: "Side" (ISM)
The University of Michigan’s consumer sentiment index increased slightly in August but fell short of forecasts. Consumers’ views on current conditions improved, but their expectations for the future remained unchanged. Inflation expectations declined for the coming year but stabilized for the next five years. 1Y trend: "Up" (SCA)
Crypto
Trump continues to pursue a crypto-focused agenda. He has been actively courting the cryptocurrency industry, promising regulatory changes. Recently, Trump unveiled his plans to make America a global crypto capital, hinting at a new venture called "World Liberty Financial" launched by his son Eric Trump. (source)
Blockchain-based protocols wrapped up Q3 2024 with fewer deals but high-value funding and industry optimism. Notable raises include PIP Labs' $80M Series B for its Story Protocol, valuing it at $2.25B, and Andrena's $18M for decentralized wireless internet. Gameplay Galaxy secured $24M for blockchain gaming. New funds targeted Web3 startups, such as Parafi Capital's $120M crypto fund and Open Network Ventures' $40M early-stage TON ecosystem fund. Q2 2024 saw a modest 2.5% increase in venture capital funding for crypto startups to $2.7B. (source)
World Markets
The Eurozone's inflation rate dropped to 2.2% in August 2024, down from 2.6% in July. This is the lowest rate since 2021. While this is good news for the European Central Bank, inflation remains above its target. Energy prices fell significantly, but inflation for services and food increased. 1Y trend: "Down" (EC)
Currencies
The Euro weakened against the Dollar, reaching a two-week low of 1.108. This was due to lower-than-expected inflation data in the Eurozone, which increased the likelihood of a European Central Bank interest rate cut in September 12. Inflation rates fell in all major Eurozone economies. 1Y trend: "Up"
The Euro Area's unemployment rate slightly decreased from 6.5% in June to 6.4% in July. This marks the lowest unemployment rate since the data began in 1995. 1Y trend: "Side" (EC)
The Chinese yuan has strengthened against the dollar, reaching one-year low of 7.09 driven by corporate demand. Companies are selling dollars to buy yuan, which could accelerate. The yuan's appreciation is also supported by expectations of lower interest rates. 1Y trend: "Side"
Commodities
Oil prices fell to $73.5 due to OPEC+ plans to increase oil production and weaker-than-expected Chinese demand. Despite recent supply disruptions, OPEC+ is expected to proceed with its planned output hike. Oil inventories are at their lowest since January, but demand remains weak, causing price forecasts to be lowered. 1Y trend: "Side"
On Week 36, some key economic indicators will be released, including, August unemployment rate, ISM Manufacturing PMI, S&P Global Manufacturing PMI Final, Balance of Trade, and JOLTs Job Openings data. Internationally, the Eurozone will release retail sales, Manufacturing PMI, and GDP growth rate. China’s Caixin Services PMI will also be published.